Small gains are big news to restaurants

According to Technomic, a Chicago-based restaurant consultancy, the industry is expected to post a 1.6 percent sales increase in 2011, essentially on higher prices, after eking out a 0.1 percent increase in 2010. Gains were driven by a strong second half of the year. Industry sales are still about 7 percent below 2007 levels, according to the group.

Restaurants suffered their biggest declines in a generation in 2009. Many public companies have suggested that the industry won't return to 2007 levels until unemployment drops.

According to market research firm NPD Group, high employment is problematic for the restaurant industry because it has been highest among 18- to 34-year-olds, a group that typically eats out more.

David Grzelak, an executive director at Engauge, a Columbus, Ohio-based advertising and marketing agency, described the 2011 outlook as "baby steps to a recovery."

"You don't have the same freedom and frivolity around eating out that you had prior to the recession," he said. "(Consumers) are eating out more often, but the decisions around how they're spending, they have more guardrails, warning signals. They're doing so much more cautiously."

For example, he said, the old stigma attached to coupon use at restaurants has turned into "a badge of honor," and something people will share with friends on Facebook. Restaurants that can get in on this conversation stand to gain.

Technomic President Ron Paul suggested that what little relief is in store is due to boredom. Many people have "frugality fatigue," he said, and that's part of the reason for more frequent trips to restaurants, a trend that started in the third quarter of 2009.

Restaurant-goers, however, are watching every expense, avoiding tipping or valet parking, Paul said.

While some chains continue to struggle, some publicly traded restaurant stocks have had a banner year, taking advantage of diners' search for value. After hitting an all-time high of more than $80 in early December, McDonald's shares closed at $74.66 Wednesday, 20 percent higher than a year ago.

Some chains are still closing locations. O'Charley's Inc., which is based in Nashville and has locations in the Chicago area, announced last month that it has shuttered about a dozen of its restaurants around the country due to poor performance. Closures don't always indicate a recent drop-off in sales. They are sometimes an indication of lease expirations, Paul said.

Grocery gourmands

Still, some sectors are experiencing growth.

Carryout and dine-in options at grocery chains like Whole Foods as well as at Costco and Target, which likely compete with restaurants, are adding to industry sales, Paul said. Technomic estimates that sales of prepared foods at supermarkets increased 3 percent, to $19 billion, and will grow another 3.5 percent in 2011. Those gains are outpacing the restaurant industry.

But there are limits. "Eating at home still has some drawbacks," he said. "You still have to deal with the cleanup."

Fast times in fast casual

And for that reason, the fast-casual segment — casual-dining food quality without the table service — has become the restaurant industry's growth engine. Chains like Panera Bread and Chipotle Mexican Grill have posted solid sales gains after investments in quality and customer service.

According to the NPD Group, visits to quick-service restaurants, including fast casual, increased 1 percent, while casual dining visits fell 2 percent, and midscale restaurants saw a 3 percent drop.

Fast casual is expected to remain the fastest-growing segment of the restaurant industry. Moe's, a Mexican fast-casual dining chain with more than 400 restaurants, including four in the Chicago area, posted 5.4 percent same-store sales growth in 2010 and plans to open at least 65 locations in 2011.